How WhatsApp co-founder Jan Koum went from food stamps to a US$19B deal with Facebook

The US$19 billion deal to sell WhatsApp Inc. to Facebook Inc. started at Yahoo! Inc. more than five years ago, when Jan Koum became disillusioned at the way Internet companies were fixated on advertising.

5 things you need to know about WhatsApp

1. User numbers: For WhatsApp’s 450 million users, Mark Zuckerberg is paying about US$21 per eyeball for each user of the instant messaging platform he’s acquiring for US$19-billion.

2. It’s cheaper than texting: It’s free for the first year and 99 cents annually thereafter. WhatsApp is almost always cheaper than texting, especially internationally and for sending photos and videos.

3. No ads: WhatsApp currently carries no advertising, and messages can only be seen by a pre-selected group.

4. Multiple operating systems: Unlike Apple’s iMessage and BlackBerry’s BBM, WhatsApp has always been available across different mobile operating systems. That makes it easy for an iPhone user to chat with a friend with a Samsung Galaxy, for example.

He left Yahoo in 2007 with one of the company’s other engineers, Brian Acton, and started a company by 2009 that shuns advertising altogether. The strategy allowed them to concentrate on creating an easy-to-use messaging product instead of developing new ways to glean customer information for their marketing pitches, Koum said in a 2012 blog post.

“No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow,” Koum said in the post. A hand-written note on the his desk reads: “No Ads! No Games! No Gimmicks!”

Their approach paid off. WhatsApp amassed 450 million monthly users — twice as many as Twitter Inc. — who send billions of messages a day. Yesterday, Facebook Chief Executive Officer Mark Zuckerberg bought their five-year-old company in the largest Internet deal since Time Warner’s US$124 billion merger with AOL in 2001, a deal that will almost certainly make Koum and Acton billionaires several times over.

For Koum, 38, the windfall would stand in stark contrast to his years as a teenager, when his family relied on food stamps after emigrating from Ukraine. The experience of living in a country where phone lines were often tapped, instilled the importance of privacy in him, said Jim Goetz, a partner with Sequoia Capital Ltd., WhatsApp’s lone venture capital investor.

’Contrarian Approach’

WhatsApp doesn’t collect information like name, gender, address or age. Instead, users are approved after their phone numbers are authenticated.

“It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police,” said Goetz in a blog post yesterday on Sequoia’s website. “Jan’s childhood made him appreciate communication that was not bugged or taped.”

Koum will join Facebook’s board of directors once the deal goes through. Facebook declined to make him or Acton available for an interview.

The partners are old enough to remember the first dot-com bust. Acton, 42, grew up in Michigan and was employee No. 44 at Yahoo, working on advertising, shopping and travel services, according to Wired. He invested during the boom and lost millions of dollars when the market imploded, according to Forbes.

He later hired Koum at Yahoo and served as his mentor, inviting him over to his house and taking him skiing, Forbes said. After exiting Yahoo, Acton said on Twitter that he was turned down for a job at Facebook in 2009.

The two founded WhatsApp later that year with the idea that smartphone users should be able to easily message each other without incurring fees from phone carriers. The service is free for a year, then costs 99 cents per year after that.

They eschewed marketing and didn’t employ a public relations person, relying on the word-of-mouth recommendations of its users instead. The service became popular with friends and family communicating in different countries, especially in Europe, because it circumvents the fees charged by phone carriers.

“While others sought attention, Jan and Brian shunned the spotlight, refusing even to hang a sign outside the WhatsApp offices in Mountain View,” Goetz said in his blog post. “As competitors promoted games and rushed to build platforms, Jan and Brian remained devoted to a clean, lightning fast communications service that works flawlessly.”

Koum’s aversion to advertising contrasts with Facebook’s efforts to make more money from people using its service on mobile devices. He said in a statement on the company’s website that WhatsApp will remain autonomous and operate independently.

“There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product,” he said.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.